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Leap Acquisition Good Move for AT&T, Gains Spectrum and Stronger Positioning in Prepaid

by Philip Kendall | 7月 15, 2013

Leap provides a good boost to AT&T’s spectrum position.

Leap principally owns PCS and AWS spectrum, the latter being an area where AT&T does not have much spectrum depth. As an extension of AT&T’s recent acquisition of WCS spectrum as part of a longer term wireless services opportunity, Leap represents a good short-term boost to AT&T. Leap has approximately 2.2 billion MHz POPs covering 136 million people. It has built out services to 96 million, of which 21 million are covered by 4G LTE. It would give AT&T the immediate ability to supplement 4G LTE services to those 40 million licensed but not covered  and, similar to the T-Mobile/MetroPCS deal, a Leap customer base with a relatively high churn and upgrade rate which could be rapidly migrated to a new network platform to make better use of the available spectrum.

The deal does not include Leap’s single 700MHz license, covering the Chicago area. Leap retains the right to sell this license and distribute the proceeds to its shareholders.

AT&T gains a stronger position in the AYCE prepaid market, with a sudden multi-brand strategy here.

Leap’s 5.2 million prepaid customers, of which 4.9 million are on its Cricket all you can eat (AYCE) brand, represent a significant boost to AT&T’s current 7.1 million prepaid customers. Strategy Analytics forecasts healthy growth in the US prepaid market and greater engagement from AT&T is a positive here. It has recently been building up the presence of its own sub-brand, Aio Wireless, to target the AYCE segment and this acquisition represents a significant boost to its prepaid operations and a good opportunity for knowledge transfer into Aio. To go from having no presence in this space to two brands, both of which will need significant support, may stretch AT&T’s resources, though Strategy Analytics does not expect the merger of these brands.

While Leap has not performed well in recent years, in particular pulling back from its expansion into mobile broadband services and, in the last year, discontinuing new connections to its PAYGo prepaid brand, its core Cricket brand has been relatively stable. Its Muve Music download service has proven popular as a benefit for subscribers. Yet both Cricket and MetroPCS have seen slow growth over the last three years as AT&T and Verizon Wireless have increased their share in the market, boosted by smartphones and 4G LTE, though they have begun to build healthy smartphone (and 4G) businesses of their own. With a better platform to extend the Cricket brand nationwide (without relying on wholesale deals), AT&T provides a good cost base from which to revive Cricket’s fortunes and compete against increasing pressure in the value segment from T-Mobile US.

Implications:

  • Pressure on Verizon Wireless: With AT&T strengthening its positioning along with T-Mobile US and Sprint in targeting AYCE and no-contract space, Verizon Wireless may feel more pressure to engage with the AYCE market. Verizon Wireless has hinted at potential use of its 3G network with a separate brand, but could find that LTE AYCE offerings from competitors make an EVDO value proposition a weaker option.
  • Prepaid gets boost with another brand moving nationwide: The acquisition could provide a further boost to growth of prepaid and some potential economies of scale in migrating the Cricket brand away from CDMA. AT&T would do well to expand the innovative service offering nationwide
  • US Cellular the next to go? Now the only mid-size carry with more than 1 million customers so the only acquisition opportunity offering any meaningful market share gains. C Spire Wireless, a private company that is one of the larger remaining Tier 2 operators, has been focusing on personalized service and rewards to seek to create a more differentiated position as consolidation has increased competition from Tier 1 operators.

 

 

 

-Phil Kendall and Susan Welsh de Grimaldo, Wireless Operator Strategies (WOS) service

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